Yahoo’s global reach still exceeds its grasp

Yahoo’s global reach still exceeds its grasp

Eclipsed by Google, it struggles to convert a vast user base into potent profit growth.

By Jessica Guynn, Los Angeles Times Staff Writer
January 28, 2008

SAN FRANCISCO — Silicon Valley entrepreneur Sramana Mitra captured a common sentiment in the title of a blog post last week: “Yahoo, Please Put Up a Fight.”

As its growth slows, Yahoo Inc. has taken steps to reorganize its management structure, narrow its focus and jettison some underperforming businesses. But it’s still being outmatched in search advertising dollars by Google Inc. and in user growth by social networks such as Facebook Inc., which are rapidly gaining members and advertisers.

Observers expect to see evidence of a widening gap between Google and Yahoo this week, when the two companies report fourth-quarter financial results.

It seems everyone — former employees, industry analysts, disgruntled investors — has an opinion about what Yahoo should do: lay off 20% of its workforce, get out of the search advertising business, even put itself on the auction block.

Mitra and many others in Silicon Valley are rooting for Yahoo to roar back and again capitalize on its status as the Web’s most popular destination, if for no other reason than to keep Google in check. But, she said, she’s not optimistic.

“Yahoo has a great opportunity still because it has tremendous traffic and a tremendous brand,” said Mitra, who posted her Yahoo analysis on the popular technology blog GigaOM. “But it can’t figure out what it wants to be when it grows up.”

A clear vision that plays to the Sunnyvale, Calif.-based company’s fundamental strengths is what investors want from co-founder Jerry Yang, who replaced Terry Semel as chief executive over the summer. But instead of defining a bold road map, Yang offered broad strokes: Yahoo would aim to become the starting point for Internet users and a must buy for advertisers. It would also open up its technology to outside developers and publishers so it could dazzle consumers with more nifty features.

It was a start, but not enough to placate Wall Street. The investment website Motley Fool recently named Yahoo the “Worst Stock for 2008,” predicting this could be the year it’s overtaken by Google as the Web’s most popular destination. Analysts have calculated that the sum of Yahoo’s parts — in particular its investments in Asian Internet companies — are worth more than its current market value.

“Jerry Yang came in this summer with a strong overture for change, and we haven’t seen much of that yet,” American Technology Research analyst Rob Sanderson said.

It may be too early to judge turnaround efforts, though. Stanford Group analyst Clayton Moran recommended patience.

“For the past few years, the rapid emergence of Google and the fragmentation of the Internet have really driven Yahoo’s underperformance,” he said. “Give Jerry at least a year. Six months is not enough time to judge his ability and what he’s done.”

Jackson Securities analyst Brian Bolan says even though the company’s reorganization hasn’t delivered anything “new or earth-shattering,” he sees positive signs that the “vultures” have finished off “the carcass that was last year.”

By and large, analysts are expecting a solid fourth-quarter performance when Yahoo reports Tuesday — 11 cents a share of profit on $1.4 billion in revenue, fueled by modest gains in search and higher volume in display advertising.

Some analysts say Yahoo’s management is quietly making progress that could bode well for earnings in 2008, including eliminating weak business units and hundreds of jobs. Still, many are concerned that the outlook it offers Wall Street will reflect an anticipated slowdown in the U.S. economy and consumer spending.

Yahoo declined to comment, citing the usual quiet period before its earnings announcement.

“This quarter is very important,” said Anthony Valencia, media and entertainment analyst for TCW Group in Los Angeles. “You can only have so many quarters of disappointing results, and you can only ask so many times for investors to be patient.”

Bottom line: Since Yang took over, Yahoo shares have lost 22%, closing at $21.94 on Friday. Should they continue to fall, Yahoo could become a takeover target for private equity firms or strategic buyers such as Microsoft Corp. or News Corp., which have both kicked its tires before, analysts say.

Yahoo knows this is not a good time to falter. People close to the company say Yang and his team are working hard to speed up decisions and streamline operations to become more like the nimble innovator Yahoo once was.

They point out that Yahoo still has a lot going for it: an iconic brand, the largest audience on the Internet with half a billion users, solid partnerships with major players and a strong balance sheet despite the disappointing profit reports.

At the Consumer Electronics Show in Las Vegas this month, Yang gave the audience a glimpse of some of the features Yahoo was developing to make its technology more relevant. He played up the idea that Yahoo was getting back to its technology roots.

“I’m guessing that a lot of you are here today to see what the new look and new face of Yahoo is all about,” he said. “Well, I’m sorry to disappoint you. It’s still the same old face. I’ve been around since the beginning.”

But will Yang lead a new Yahoo or the same old Yahoo? That, analysts say, is the big question.

“It’s all well and good to have ideas, but people are looking for more than just ideas at this point,” Standard & Poor’s analyst Scott Kessler said. “People don’t care about vision, they want to see results. So far the results have been mixed at best.”

Francisco Antonio Cerón García

The main question: What would be your next strategy step to continue developing Internet in a new radical way?
It is a way in the sense of “meta”, like Google is a “meta internet”. Do we know how to do it?
A silicon valley is essentially 90% about the people and 10% about the place. Places close to financial centres and developed cities are more likely to host the next silicon valley, but smart people can turn any place into a silicon valley if that’s what they want, even if it’s in the middle of nowhere. However, now with the Internet I believe less in silicon valleys. I mean, what’s the point of having silicon valleys when entrepreneurs and techies can network through the Net and telecommute? As everyday real life contact becomes less necessary to conduct business, we will soon start seeing the genesis of ‘virtual’ silicon valleys leveraging the power of the Internet. If Ihad to build the next silicon valley, I would start by recruiting smart people on the Internet and creating incentives for like-minded individuals and companies to participate in some sort of hub website virtual marketplace

It makes me think carefully about the next big revolutionary step on internet development. Eventually, I think that the issue that is being treated here is a key issue and it deserves a new blog to be opened for it.
Generally speaking, this is the great step that could completely change our world as far as we know it now, like when computers were created and developed or just like Google, and it is all this tiny but huge things that have been changing our way of living and the way we understand life.
This is an open question, and I want that it would be the spirit of this simple blog!
You are all invited to build the meta internet!
Then you could start thinking a lot about this issue!

Meta

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